Fifteen years ago Bill Gates appeared on the BBC’s Wogan show - which the Beeb thought of as a nightly Johnny Carson, but which was really like watching Regis Philbin on cough syrup - to show off his WinPad PC. The wooden Gates made a joke about making his money disappear, with only a couple of clicks, using only a stylus. As Gates blinked, a nation which had never heard of Microsoft, and couldn’t quite figure out why the guy in glasses wasn’t singing or dancing, looked on in sympathetic embarrassment.

But Gates’s prime time TV appearance underscored one point, popular in the public prints at the time, which was that a nerdish, upstart technology was changing the very foundations of the world as we know it. Microsoft was simply smarter, more agile, more cunning, and far more darkly mysterious than the fusty incumbents, like IBM, could ever realize. To stand in the way of Microsoft was to stand in the way of youth, innovation and progress itself.

Now, it may puzzle you as much as it puzzles us that this idea ever gained popular currency - let’s save that discussion for another day. But it can’t have escaped your notice that this mythical struggle has been reprised by the inkies several times - in the mid-1990s with Netscape - and today with the phoney war between Microsoft and Google.

If you’re of the view that history repeats itself the second time round as farce, then the parallels are even more uncomfortable.

Today, Microsoft is a software monopoly that equally, is barely acquainted with its own methods of production. The last Microsoft engineer who worked on the original incarnations of Windows left an engineering capacity at the company a long, long time ago and, as a consequence, a company that once could turn on a sixpence and drop off an OS refresh that seriously screwed a competitor now takes seven years to eke out an update. Insulated by the comfortable monopoly position it enjoys, Microsoft today isn’t even in control of Microsoft. But then again, why does it have to worry?

Now fast forward to 2006, where Google, if we’re to believe the popular prints, is simply smarter, more agile, more cunning, and far more darkly mysterious than its incumbents can fathom.

Or, er, is it?

When Google unleashed PageRank™ on the world, it really created a monster.

Google was so proud of its algorithm that it liked to boast that it mirrored the “inherent democracy” of the internet, a phrase which coyly and insidiously, flatters us all. PageRank™ was a truer representation of life than we ever realized, Google said, if only we cared to look.

The trouble is, PageRank only worked within a small dataset of peer reviewed academic journals. To extrapolate this into a way of life, as Google’s dreamy maths-obsessed boy wonders tried to do, was an essentially utopian gesture, which supposed that no one would try and game the system to their own nefarious ends. Only the inevitable happened, and as Google got more popular, and as the value of appearing in those top spots increased, Google gradually lost control of the algorithm which was once its muse. At the time, we remember, we gained very few plaudits for documenting this weary process - as Google was gradually gamed by desperate trinket salesmen, who built link farms to tout their wares - and by technology evangelists, who mistook overnight popularity for a validation of a lifetimes’s achievement. All were to fall to earth eventually, as technology offers no short cuts or backdoors when the calculations are finally made.

Read more… 

If you want to understand just how toxic a home mortgage can get, consider this real-life, continuing saga:

Katherine Stephens is a 94-year-old widow, now living in a nursing home in southern New Jersey. According to her nephew, William Finch, she has $38 in her bank account. Monthly Social Security checks pay only a small portion of her nursing home bills.

In 1988, Stephens and her husband, Harold, signed up for what they thought was a great concept for seniors: A “reverse mortgage” that would pay them $312 a month virtually in perpetuity - until they died or moved out of their house in Brigantine, N.J., near Atlantic City. At the time, she was 76 and he was 78. Her husband later died, leaving her alone in the house. The $312 checks came in like clockwork every month, until early this year when she moved to the nursing home.

The interest rate on the Stephenses’ mortgage wasn’t cheap - 11 1/2 percent. When all the fees associated with the loan were rolled into the financing charges, the annual percentage rate (APR) came to 13.43 percent. But those costs were hardly the worst features of the Stephenses’ reverse mortgage. Buried away in the block print of their loan agreement was something called “additional interest.”

The “additional interest” provision gave the lender the right to 100 percent of all gains in the market value of the property from the date of settlement to the date of final payoff. At the time of the loan settlement in 1988, the appraised value of the Stephenses’ house was $83,500, according to the mortgage documents. Two recent appraisals put the current market value of the house at roughly $500,000.

From 1988 through January of this year, Ms. Stephens received a total of $67,586.01 in monthly payments - first from the original reverse-mortgage lender, the now-defunct American Homestead Mortgage Corp., and later from Wilmington Savings Fund Society (WSFS), a Delaware bank that purchased American Homestead’s portfolio of reverse mortgages in 1994.

WSFS, a $2.2 billion federally regulated bank, now is demanding that Ms. Stephens pay it:

• The $67,586.01 advanced in monthly payouts, plus

• $158,218.19 in compounded interest at the 11 1/2 percent rate, plus

• The 100 percent of the house appreciation since 1988 it is entitled to as “additional interest” under the loan contract.

All this comes to $416,500, but the contract puts a “cap” on total potential payouts to the lender at 100 percent of the current appraised value of the house, i.e. $500,000, less selling expenses. Without the cap, Ms. Stephens could have owed WSFS more than $642,000.

Bottom line: WSFS wants nearly half a million dollars in compensation for loan advances of $67,586.01, dribbled out at $312 a month over 18 years. Only during 12 of those years did the advances come from the bank’s own resources.

WSFS is adamant that it receive full payment despite the fact that the debtor is a frail, virtually penniless 94-year-old widow who simply wants to use some of her appreciation proceeds to pay her $4,000-per-month nursing home bills.

“I think it is absolutely disgusting,” said nephew Finch, who is 70 and lives in Clermont, Fla. “They [the Stephenses] signed something they didn’t really understand. Now the bank wants everything she’s got.”

Finch, who has power-of-attorney for his aunt, said all discussions with WSFS “went nowhere. They took a totally hardball approach.”

After I contacted WSFS and asked for an explanation, spokeswoman Joan H. Sullivan said in an e-mail reply that the bank’s reverse-mortgage loans comply “fully with federal and state laws and WSFS understands that at the time of these early reverse-mortgage originations - approximately 15 to 20 years ago - all of the terms and conditions of those loans were fully disclosed to borrowers.”

Absent “special circumstances,” wrote Sullivan, WSFS has always “sought to collect all amounts due to the lender under the contractual terms of the loan, which we believe the lender [is] entitled to given the benefits provided and the risks assumed.”

Benefits provided? You mean the $67,500 in advances versus the $500,000 now demanded? Risks assumed? How big were they really when the $83,500 house securing the $67,500 in advances soared to $500,000 in market value?

Finch has now listed the house for sale. At the moment, virtually all of the proceeds appear to be headed to the coffers of a $2.2 billion bank, with not a cent to a 94-year-old who wants to pay her nursing home bills.

The reverse-mortgage industry no longer makes equity-grab loans. Major institutions such as Fannie Mae no longer collect interest based on appreciation sharing on reverse mortgages, even when loan contract language entitles them to do so.

But that’s of no consolation to Mrs. Stephens, is it?

Baltimore Sun

The top 15 trends from No. 15 to 1.

15. Development of the Internet.

“This includes e-mail, the Internet, SEO, ASP, broadband, wi-fi, blogs and podcasting,” he said.

According to NAR’s Technology Impact Survey 2005, below is the percentage of Realtors who use the specific technologies:

• 99 percent use e-mail • 97 percent use a pc • 95 percent use a mobile phone • 77 percent use a digital camera • 40 percent use a pda • 7 percent use a gps

“This is what NAR tells us, but sometimes it’s tough to swallow. If they have e-mail, why aren’t they using it?” he asked.

Given these results, said Swanepoel, the industry is at a lower e-commerce capability than consumers want. Google has 8 billion pages catalogued, and 80 million categorized as real estate. Eight billion is roughly a quarter to a third of what’s out there, they admit, depending on the reports used.

“Most agents don’t yet even understand how to optimize their sites, and they are not as effective as it could be, the industry as a whole, with a few exceptions,” Swanepoel said.

14. Do we really understand our customers? According to NAR, five years ago, the average Realtor was 58. Last year, they resurveyed and the average Realtor was 53. The industry aged five years but actually got 10 years younger, and there are 2.6 million licensed agents and 1.3 Realtors.

“There are different generational needs,” he said.

Based on a survey of online consumers: • 25 percent pick first agent to respond • 21 percent want immediate response • 23 percent want contact in 30 minutes • 28 percent want contact in 4 hours

“In short, consumers want faster response, more efficiency, expertise, added value and lower commissions and fees,” he said.

13. Can agents hold on, if they aren’t willing to adapt fast enough? Some observations:

Agents are no longer the gatekeepers — they used to be sole owners of the information in buying a house but that information is available from multiple sources today. According to Swanepoel, agents have remained the dominant player in home-buying transaction, but their commissions are under attack — all indicators support a decline. In summary, the home-buying process will remain a professionally assisted transaction but currently agents appear to be losing ground in the value proposition.

12. The evolution of the multiple listing services. Historically, the strength of the brokerage industry has had control over housing information. The challenges also include data ownership, data security, data exchange and data usage.

Swanepoel feels that consolidation of some sort will happen, privatization seems likely, and expanded consumer access seems probable. He pointed out that some sites to watch, because they seem to be moving into the space, include Google, Yahoo, Craigslist and MyPlace Connection.

11. Where will we find new customers?

“The old practice of putting a board on the lawn is gone,” he said.

Seventy-five percent of consumers are searching online. Only 10 percent of Realtors’ ad dollars are spent online. Eleven billion of real estate advertising needs to be reallocated, and watch for stealth sites, niche marketing, chat rooms, forums and blogs.

10. Will brands also dominate real estate? Franchising was the single largest driver to defining brands in real estate, but that isn’t how other products operate, such as CocaCola.

“At some stage, there is some value in a brand, which might make it hard for, say, HomeDepot come in and compete, but the risk is that they can grow through acquisition,” Swanepoel said.

9. Does size really matter? Of the top 500 real estate brokerages, during the past decade this trend has eclipsed all previous levels of M&A. New entities have reached critical mass, multi-brand ownership is rising, there is a more professional management style and a stronger focus on ROI.

“Warren Buffett buys competing companies, and owns competitive intelligence on two or three competitors within one field — it’s an interesting concept,” he said.

At this point in time, he doesn’t believe that the market can sustain 2.6 million agents, he added. And he pointed to NRT, which has 1000 offices, 64,000 agents, 500,000 transactions, $230 billion in closed volume and $5 billion in gross commissions.

8. Are we ready for the virtual transaction?

“I think that title companies up front, mortgage companies are in the middle, and Realtors are at the end,” he said. “Large title companies have automated the title side of the transaction. Automation of the mortgage side is progressing well, and acceptance by agents is slowing the automation process. Optimistically, 5 percent are there, but it’s probably closer to 1 to 2 percent. Meanwhile, control over data and process integration has resulted in the acquisition of forms and MLS companies.”

He also talked about the reintegration of transaction management systems — back at Inman in the late ’90s, everyone loved the concept, but several companies went out of business. Now there is a new focus on transaction management and bundled services.

Most large RE brokerage firms have embraced offering other services. According to NAR, below are the percentages of small (less than 10 agents) and large (50 agents or more) that offer bundled services. The first number is small agents, while the second is large.

• Business brokerage: 12 percent and 42 percent • Home warranty: 11 percent and 32 percent • Mortgage lending: 12 percent and 58 percent • Tilte insurance: 2 percent and 48 percent • Escrow services: 12 percent and 42 percent • Home inspection: 4 percent and 5 percent

7. How will the baby boomer generation affect the real estate industry?

“Right now there’s a migration to Florida, Nevada and Arizona from the Rust Belt. These areas are growing disproportionately,” said Swanepoel, and prices are spiraling up and down based on the location.

6. Who is chasing the American dream? Homeownership is at an all-time high – 70 percent, said Swanepoel. But ownership by African Americans is 49 percent, Hispanics is 47 percent and Asian Americans is 27 percent.

It is estimated that there will be 10 million new homeowners by 2013, and 50 percent are expected to be minority households.

“Why isn’t there a realty brokerage focusing on minorities?” he asked.

5. Will the industry outsmart itself? According to Swanepoel, there was a :

• 65 percent surge in agents from 1.5 to 2.6 – in the past five years. • 50 percent of agents don’t make it to their first anniversary. • 85 percent of agents have no sales experience. • 250 percent increase in new business models and technology compared to the same period of time five years ago.

And he said that these agents have voids in the basic skills, such as productivity skills, online marketing (Google, Craigslist are working online, while Realtors are still buying classified ads), working with seniors (baby boomers are moving), vacation and luxury homes, and mortgage brokerage.

4. Is the threat of an outsider coming in real?

“In my opinion, yes, the threat is real,” he said.

Twenty and 30 years ago, the outsiders that owned real estate at some time include Sears, who bought Coldwell Banker, TWA, Transamerica, Merrill Lynch, Metropolitan, Control Data and Meredith. They wanted into this business because they were looking for leads for their own products and services, he said.

In the past 10 years, Prudential bought Merrill Lynch, and Cendant bought Coldwell Banker, ERA and Century 21, and GM might split off the GMAC division, while Berkshire Hathaway ended up accidentally acquiring a real estate company, and now has built it up to be the second largest realty firm.

By 2010, Swanepoel said there are a few companies that could emerge on the scene including priceline.com, Wal-Mart, H&R Block, eBay, Yahoo, Google and HomeDepot. Why?

“Because Realtors don’t get online, and these companies do. They could get into real estate relatively easily if they wanted to,” he said.

3. Will the existing real estate model break? The existing 1960s real estate model is outdated — very similar to Delta vs. Southwest. Everyone is still searching for a winning model, and some new models are starting to mature, including online, discount and annuity.

Swanepoel said that there are a large variety of completely different models, all brand new, including a list for free (the exchange for services) model, and a pre-list. (The prelist is where a homeowner just moves into the house, and upon closing a company will get permission to list on the day the property was actually bought, and the pre-list is good for 20 years. When it comes time for a sale, that company already has the listing in the bag. This model has been taken to court and ruled legal.) The real estate search engines Trulia and Zillow, that offers free, instant valuations, are also new models on the scene.

2. Is there room in the middle for another middleman? That’s exactly what’s happening.

“The Realtors had a tight hold, but now someone else has crept in,” Swanepoel said. “Every year, real estate industry makes $1 billion in commissions a year. We know there’s a lot involved, like working on Sundays, etc. but to those sitting in a boardroom, they see a group of people that don’t use e-mail, don’t embrace technology, and they are making more than $1 billion in commissions annually. Now, this same group, many of whom were in the dot com bubble when it burst, are resurfacing. They are back with a better mousetrap. They are creating portals that are after one thing — traffic.”

The threat is that these groups, such as HomeGain, House.com, HouseValues.com, RealEstate.com, are taking a slice of the commission pie before it’s traditionally divided. And the new middleman slice could redistribute 25-50 percent of commissions.

1. Is technology a tool or a strategy? The first few waves of technology were designed to make life easier and share information (PCs, LAN, word processing, the Internet, networking) and to make things cheaper and faster (bandwidth).

“Right now electronic devices are taking center stage,” said Swanepoel. “Mobile phones are the most convenient, therefore most likely to dominate. No longer are they just a tool; rather they’ve become a lifestyle.”

The next trend will be the seamless integration of text, voice and eCommerce.

“It is changing, and by no means is the system broken, it is working, but agents aren’t’ adapting quickly enough,” Swanepoel concluded.

For a complete copy of Swanepoel’s trends study, visit www.Swanepoel.com.

Read more…